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Thailand Central Bank Holds Rate Steady After December Hike

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Thailand's central bank left its key interest rate unchanged in January, after raising it in December for the first time in over seven years, citing future risks to financial stability.

The Monetary Policy Committee voted 4 -2 to maintain the policy rate at 1.75 percent, the Bank of Thailand said in a statement on Wednesday. The decision was in line with economists' expectations.

Two members sought a quarter-point hike in the interest rate to 2 percent to curb financial stability risks and to build policy space, while a policymaker did not attend the meeting.

In December, the MPC voted 5-2 to raise the policy rate by a quarter-point to 1.75 percent, which was the first hike since August 2011, when the bank had lifted the rate by 25 basis points to 3.5 percent.

"Looking ahead, the Thai economy was projected to continue to gain traction although the external demand might slow down," the central bank said.

"The Committee viewed that accommodative monetary policy would remain appropriate in the period ahead, and thus would continue to monitor developments of economic growth, inflation, and financial stability, together with associated risks, in deliberating appropriate monetary policy in the period ahead."

Lower energy prices and increased downside risks are expected restrain headline inflation, while core price growth is forecast to edge up in line with previous projection.

"Overall financial conditions remained accommodative and conducive to economic growth," the bank said. "However, there were risks to financial stability in the future that warranted close monitoring."

Policymakers assessed that the current accommodative monetary policy stance had contributed to the continuation of economic growth and was appropriate given the inflation target.

However, two members viewed that the economy continued expanding around its potential, and that overall financial conditions would remain accommodative and conducive to economic growth despite an additional 0.25 percentage point increase in the policy rate, the bank said.

The BoT sounded surprisingly upbeat on the outlook for the economy, Capital Economics economists said.

"While this suggests that a further rate hike cannot be entirely ruled out, we are sticking with our view that interest rates will be left unchanged this year," they said.

"Another reason not to expect further tightening is the upward pressure it would put on the baht, which could damage the competitiveness of Thailand's export sector," the economists added.

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